UK mort­gage lend­ing up in 2H 2015, BTL saw growth

There was a surge in mort­gage lend­ing in the UK dur­ing the se­cond half of 2015, as cus­tomers took ad­van­tage of low in­ter­est rates, with the Gov­er­nor of the Bank of Eng­land, Mark Car­ney, sug­gest­ing in Novem­ber 2015 that the cen­tral bank rate may not rise un­til 2017. To­tal gross lend­ing in­creased by 29.4% in 2015.

The Buy-to-Let sec­tor recorded sub­stan­tial growth in 2015, as in­vestors in­creas­ingly looked to­wards prop­erty in the ab­sence of any favourable sav­ings rates. With house prices con­tin­u­ing to rise and the buy-to-let scheme mak­ing be­com­ing a land­lord more af­ford­able, this type of mort­gage has risen from be­ing a twen­ti­eth of all mort­gages to a fifth in a sin­gle year. The avail­abil­ity of high loan-to-value (LTV) mort­gages and even in­ter­est-only mort­gages, com­bined with pen­sion re­forms in the March 2015 Bud­get - al­low­ing over 55s to re­ceive a lump sum in­stead of an­nu­ities - sparked the growth.

Mort­gage af­ford­abil­ity eased dur­ing the re­ces­sion as the BoE re­duced its pol­icy in­ter­est rate to a record-low of 0.5% in 2009, and Fund­ing for Lend­ing pro­vided 18 months of ac­cess to cheap bank fi­nance. This prompted retail lenders to lower in­ter­est rates on tracker and fixed-rate mort­gages dur­ing 2009-2014, lead­ing to lower-value loan re­pay­ments from 2009 on­wards.

This trend con­tin­ued in 2015, as HSBC be­came the first len­der to launch a sub-2% five-year fixed mort­gage in April, which trig­gered price war be­tween lenders. Rates con­tin­ued to plunge in 2015, with the av­er­age 75% two-year LTV mort­gages as cheap as 1.6%. This has been a sub­stan­tial fac­tor be­hind driv­ing the gross lend­ing and the re­pay­ments mar­kets, as con­sumers have been keen to lock them­selves into the at­trac­tive rates.

A surge in mort­gage lend­ing was recorded dur­ing the se­cond half of 2015, as cus­tomers took ad­van­tage of low in­ter­est rates, with the Gov­er­nor of the Bank of Eng­land, Mark Car­ney, sug­gest­ing in Novem­ber 2015 that the cen­tral bank rate may not rise un­til 2017.

Al­though it looks as if the cen­tral bank rate will not rise un­til as late as 2017, the rate will in­crease at some point over the pe­riod of 2015-2019, which will in­crease re­pay­ment costs. The Mort­gage Mar­ket Re­view (MMR) in­cludes mea­sures to check that all bor­row­ers are able to af­ford the cost of any po­ten­tial hike, so in­ter­est rate in­creases are likely to sup­press growth in the mar­ket, if only tem­po­rar­ily.

With the de­mand for mort­gages be­ing so high, any in­ter­est rate hike is un­likely to lead to a de­cline in gross mort­gage lend­ing, al­though re­pay­ments are more likely to drop off as cus­tomers be­gin to strug­gle to make them.

Lend­ing to first-time buy­ers had de­clined year-on-year to April 2015 fol­low­ing the im­ple­men­ta­tion of the MMR in April 2014. The re­view in­cludes mea­sures to check that all bor­row­ers can af­ford the cost of any po­ten­tial hike, to the ex­tent of look­ing through on­line bank state­ments and credit rat­ings, have made it harder for many to get on the prop­erty lad­der.

The boom in buy-to-let lend­ing has cre­ated a very sat­u­rated mar­ket with di­rect com­pe­ti­tion for first-time buy­ers, and it has cer­tainly con­trib­uted to ris­ing house prices, es­pe­cially in Lon­don. Lend­ing to first time buy­ers in­creased by 10% year-on-year to Septem­ber 2015, as real wages con­tin­ues to im­prove and de­mand re­mained strong.